Correlation Between Profunds-large Cap and Precious Metals

Can any of the company-specific risk be diversified away by investing in both Profunds-large Cap and Precious Metals at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Profunds-large Cap and Precious Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Profunds Large Cap Growth and Precious Metals Ultrasector, you can compare the effects of market volatilities on Profunds-large Cap and Precious Metals and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Profunds-large Cap with a short position of Precious Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Profunds-large Cap and Precious Metals.

Diversification Opportunities for Profunds-large Cap and Precious Metals

-0.58

Correlation Coefficient

Profunds-large Cap  Precious Metals

Excellent diversification

The 3 months correlation between Profunds-large and Precious is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Profunds Large Cap Growth and Precious Metals Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals Ultr and Profunds-large Cap is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Profunds Large Cap Growth are associated (or correlated) with Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals Ultr has no effect on the direction of Profunds-large Cap i.e., Profunds-large Cap and Precious Metals go up and down completely randomly.

Pair Corralation between Profunds-large Cap and Precious Metals

Assuming the 90 days horizon Profunds Large Cap Growth is expected to under-perform the Precious Metals. But the mutual fund apears to be less risky and, when comparing its historical volatility, Profunds Large Cap Growth is 1.55 times less risky than Precious Metals. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Precious Metals Ultrasector is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,824  in Precious Metals Ultrasector on February 3, 2025 and sell it today you would earn a total of  1,221  from holding Precious Metals Ultrasector or generate 25.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Profunds Large Cap Growth  vs.  Precious Metals Ultrasector

Profunds Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Profunds Large Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Profunds-large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Precious Metals Ultr

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals Ultrasector are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Precious Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Profunds-large Cap and Precious Metals

The main advantage of trading using opposite Profunds-large Cap and Precious Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Profunds-large Cap position performs unexpectedly, Precious Metals can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Precious Metals will offset losses from the drop in Precious Metals' long position.

The idea behind Profunds Large Cap Growth and Precious Metals Ultrasector pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.